Monday, May 2, 2016

. . . and When Demand Exceeds Supply (2016)

The Cooking the Books column from the May 2016 issue of the Socialist Standard

There is a housing shortage in London. Or rather, paying demand for accommodation in London exceeds supply for sale, which is not necessarily the same thing. There are probably enough buildings in London to house everybody, certainly enough so that nobody need be homeless or live in accommodation without basic amenities. The Times (12 April), for instance, reported:

‘A growing glut of luxury homes in inner London could encourage developers to turn them into offices, according to a report that says the total floor space of top-end apartments in the pipeline would be enough to cover Hyde Park.’

Where paying demand exceeds supply for sale prices go up, in the case of housing, rents and house and land prices. Those on lower incomes tend to lose out, having to either cut back on food or move to an area where rents are not so high. This can cause problems for the smooth operation of capitalism as many in this position are essential workers who need to live near where they work.

Various ways of dealing with this problem have been tried. Council housing was one, providing subsidised rented accommodation for workers but this has virtually been abandoned, with priority now being given to people who councils have a legal obligation to house. Rent control was another but, by making investing in house building and renting less profitable, leads in the long run to less private rented housing being provided and to landlords not maintaining their property.

The current model is for local councils to sign deals with private profit-seeking developers to provide some ‘affordable’ housing in their projects. ‘Affordable’ is defined as a rent of below 80 percent of the going market rate, which is still unaffordable for many. The property developers naturally seek to maximise their profits, but the more affordable housing they are required to provide the less their profits. This places a limit on how far councils can push them. If pushed too far they can just walk away or, as often happens, plead rising costs to reduce the previously agreed percentage of below-market housing.

During the mayor of London elections some of the candidates made promises to increase the supply of cheaper housing that, given this model, would be undeliverable as they would make house building less profitable for developers. Sadiq Khan, the Labour candidate and ex-MP George Galloway both promised to ensure that at least 50 percent of new housing would be affordable. They also promised to redefine ‘affordable’ at a lower level of rent, so making house building even less profitable.

The 12 April Times also reported on ‘flipping’ where property is bought ‘by investors who have no intention of living there or renting them’ but bank ‘on price rises to resell at a profit before construction is complete. The flipper secures the right to buy a home with a deposit and then sells that right to a second investor for a higher price. They pocket the difference.’

Because housing is produced for profit there is no possibility of a rational approach to housing within capitalism. As Engels pointed out as long ago as 1872:

‘As long as the capitalist mode of production continues to exist, it is folly to hope for an isolated solution of the housing question or of any other social question affecting the fate of the workers. The solution lies in the abolition of the capitalist mode of production and the appropriation of all the means of life and labour by the working class itself’ (The Housing Question).